One of the factors that increases the cost of certain types of insurance coverage is voluntary lapse of a first insurance policy by the policy owner. An insurance company incurs a certain sales and start up expense when it sells a new policy. This expense is typically recovered, or amortized, in subsequent premium payments. If a policy owner lapses his policy before the initial sales and start up expense is recovered, then the insurance company may lose money on that policy.
Insurance companies measure lapse rates and factor the expected losses into their pricing. If an insurance company can lower its lapse rate, then it can potentially reduce its premiums for certain types of insurance policies.
Insurance policies that may have a lower cost impact in pricing due to lower lapse rates include homeowner's, auto, mortgage, and life insurance.
Known methods for reducing lapse rates include offering discounts upon renewal of a first insurance policy and increasing the attention paid by an insurance agent to an owner of a first insurance policy.
There is a long felt need, however, for additional effective means for reducing lapse rates of certain insurance coverages.